Carlos Cordón

Building Successful Customer—Supplier Alliances

Abstract One of the most promising avenues for improving company competitiveness today is supply chain management—or more appropriately demand chain management. The difference in terminology reflects a radical change in the way many companies want to operate today who see the supply chain as primarily concerned with improved purchasing, usually through applying muscle power to the suppliers. Demand chain management starts with the customers, working backward through the entire chain, to the suppliers of the suppliers. The objective is to create synergy in the overall chain to achieve larger benefits than are possible by each entity in the chain acting independently.

LEGO: Consolidating Distribution (A) (Abridged)

The unabridged versions of these cases won the 2011 ecch Case Award in the category Production and Operations Management, and the Supply Chain Management Award in the 2009 EFMD Case Writing Competition organized by the European Foundation for Management Development. The case series IMD-6–0315 and IMD-6-0316 are distributed by ECCH (www.ecch.com) for educational use. This case series describes the decision-making situation and the challenges of implementing a logistics transformation at LEGO, starting in 2004 and continuing for four years. The A case concentrates on the choice between three viable options. The B case shows that building a strong partnership and implementation is the key to successful consolidation. By working closely with the chosen partner and finding a common understanding, a fair working model, previous issues can be resolved and a better way of working can be created. These can ultimately lead to greater rewards for both parties.

Harnessing the power of two

We come now to the last chapter. Here we ask you—as a reader—whether the ideas we have presented make sense to you, and whether you would like to play a role in seeing them implemented in your company. If so, then we feel some obligation to help in whatever ways we can. Our experience indicates that the key requirement is to create enough belief in your organization to generate the necessary momentum for change. Changing people’s lives is not easy. Development of collaborative relations necessitates changing closely held traditions and culture—the ways things are done—and, more important, the underlying reasons for doing so. We have seen many companies that can say the words “win–win,” but meaning them is quite a different matter.

Changing two at a time

This chapter examines an expanded role for change management: Considering the joint changes needed to create pairs of aces. There is a vast literature on change management and the best practices for transforming organizations. Similarly, there has been a great deal of attention given to the organizational issues associated with key account management and global account management. However, this is largely for one firm, not two jointly. We will briefly review the key concepts in each of these areas, but our objective is to go significantly beyond this thinking.

Picking ten partners

Most of us are familiar with the traditional Western approach to buying and selling. It is a wide-open process in which a company may juggle hundreds—or even thousands—of partners, pitting them against each other. But today, a growing number of companies are taking a radically different view. Buying at Honda, for example, is strategically based on “super suppliers”—a small number of firms with which the company works closely to develop a dominant cost advantage. In a similar fashion, selling at the engineering giant Asea Brown Boveri (ABB) is now focusing on developing special relations with key customers—increasing the total sales volume to these customers by tenfold or more.

Developing pairs of aces

It is fairly easy to convince people of the payoffs from collaboration. Making it a reality is a different story, requiring “unlearning” of many common business approaches. But even that is not enough—you need to understand the land mines and how to avoid them.

Selling the way your customers want to buy

In Chapter 1, we put forward this book’s fundamental proposition: The power of two firms (a customer and supplier pair) working in close collaboration is the best way to win today’s tough competitive game. Chapter 2 expanded on the idea of collaboration, identifying four distinct stages, the efforts required to reach each of these stages, and the potential benefits to both customer and supplier of doing so. In Chapter 3, we examined the changes required in the ways a company buys. How does the customer need to adapt its procurement practices to work collaboratively with a small number of carefully selected suppliers?

Choosing your battles wisely

Chapter 4 has a key message: You need to sell in the light of how your customers wish to buy, and not flog dead horses. You must expect that your customers will see procurement as a key source of profit improvement and develop the means to squeeze every possible drop of price reduction out of most suppliers. Being naive as to their intentions, or believing in the “smoke” they generate, is not in your interest.

Mastering the four stages of collaboration

Chapter 1 presented the fundamental ideas of the power of two, some examples, and the need for selection/development of particular customer–supplier partnerships. In all of this, there is an overriding need for joint efforts: It takes two to tango. But more importantly, there are ever-increasing payoffs to be derived from these collaborative relationships. The power of two has the overriding goal that collaboration should exponentially increase competitive advantage: 2 squared, then 2 cubed, etc.

Hewlett-Packard: Creating a Virtual Supply Chain (A) (Abridged)

This case study describes the outsourcing decision-making situation and the challenges of subsequent implementation in the tape drive unit at Hewklett-Packard, starting in July 2001 and continuing for two years. The A case concentrates on the choice betweenthree viable options. The B case shows that the implementation is key to success. The choice is secondary. Outsourcing is not a one-off decision making process. It requires constant management attention and the appproach and relationship of the partners need to be shifted across the life long cycle of the product. Your comments are welcome on www.supplychain-forum.com